Wall Street Faces SEC Heat Over WhatsApp Use

Wall Street Faces SEC Heat Over WhatsApp Use

Time Stamp: September 25, 2023 1:55 PM
Wall Street Faces SEC Heat Over WhatsApp Use PlatoBlockchain Data Intelligence. Vertical Search. Ai.

The US Securities
and Exchange Commission (SEC) is ramping up its investigation into Wall
Street’s use of private messaging apps like WhatsApp and Signal. The agency has
recently collected thousands of staff messages from more than a dozen major
investment companies, marking a significant escalation in its two-year
crackdown on potential record-keeping violations.

The SEC’s
probe initially targeted broker-dealers, resulting in over $2 billion in fines.
However, the focus has now shifted to investment advisers. The agency has been
scrutinizing messages on personal devices from the first half of 2021,
targeting a selection of employees, including senior executives. Firms under
the microscope include Carlyle Group, Apollo Global Management, KKR & Co,
TPG, and Blackstone.

The SEC’s
intensified scrutiny exposes companies and their executives to greater risks. “The more information you give the SEC, the more you fuel the beast,”
commented an anonymous source familiar with the matter quoted by Reuters.
Unlike previous broker-dealer investigations, where the SEC reviewed only a
sample of messages, the agency is now directly collecting messages from
employees’ personal devices.

Investment
firms have pushed back against the SEC’s demands, arguing that their
record-keeping requirements differ from those of broker-dealers. An industry
letter led by the Managed Funds Association labeled the SEC’s request as “invasive” and raised concerns about privacy. Despite the resistance,
the SEC has insisted that the firms hand over the messages.

Legal Implications of SEC’s
Actions

While the
SEC’s investigation is not evidence of wrongdoing, it does put the spotlight on
compliance

issues. Jaclyn Grodin, a lawyer not involved in the investigation,
noted in a conversation with Reuters that the SEC’s extensive data
collection could uncover compliance failures unrelated to the original focus of
the probe. The SEC is also increasingly concerned about issues like private
fund fees, conflicts of interest, and preferential treatment of investors.

Wall Street
has long struggled with monitoring staff communications on personal messaging
channels. The SEC’s focus on this issue intensified when JPMorgan Chase failed
to provide documents in a separate probe, leading to a $125 million settlement

over record-keeping lapses.

The
agency’s ongoing investigation has already netted big names like Wells Fargo,
Bank of America, Goldman Sachs, and Morgan Stanley, generating millions in
legal fees.

The SEC’s
investigation is shaping up to be a signature enforcement initiative under
Chair Gary Gensler.

The commission remains steadfast in its mission to uphold
record-keeping rules as a guard against wrongdoing.

The US Securities
and Exchange Commission (SEC) is ramping up its investigation into Wall
Street’s use of private messaging apps like WhatsApp and Signal. The agency has
recently collected thousands of staff messages from more than a dozen major
investment companies, marking a significant escalation in its two-year
crackdown on potential record-keeping violations.

The SEC’s
probe initially targeted broker-dealers, resulting in over $2 billion in fines.
However, the focus has now shifted to investment advisers. The agency has been
scrutinizing messages on personal devices from the first half of 2021,
targeting a selection of employees, including senior executives. Firms under
the microscope include Carlyle Group, Apollo Global Management, KKR & Co,
TPG, and Blackstone.

The SEC’s
intensified scrutiny exposes companies and their executives to greater risks. “The more information you give the SEC, the more you fuel the beast,”
commented an anonymous source familiar with the matter quoted by Reuters.
Unlike previous broker-dealer investigations, where the SEC reviewed only a
sample of messages, the agency is now directly collecting messages from
employees’ personal devices.

Investment
firms have pushed back against the SEC’s demands, arguing that their
record-keeping requirements differ from those of broker-dealers. An industry
letter led by the Managed Funds Association labeled the SEC’s request as “invasive” and raised concerns about privacy. Despite the resistance,
the SEC has insisted that the firms hand over the messages.

Legal Implications of SEC’s
Actions

While the
SEC’s investigation is not evidence of wrongdoing, it does put the spotlight on
compliance

issues. Jaclyn Grodin, a lawyer not involved in the investigation,
noted in a conversation with Reuters that the SEC’s extensive data
collection could uncover compliance failures unrelated to the original focus of
the probe. The SEC is also increasingly concerned about issues like private
fund fees, conflicts of interest, and preferential treatment of investors.

Wall Street
has long struggled with monitoring staff communications on personal messaging
channels. The SEC’s focus on this issue intensified when JPMorgan Chase failed
to provide documents in a separate probe, leading to a $125 million settlement

over record-keeping lapses.

The
agency’s ongoing investigation has already netted big names like Wells Fargo,
Bank of America, Goldman Sachs, and Morgan Stanley, generating millions in
legal fees.

The SEC’s
investigation is shaping up to be a signature enforcement initiative under
Chair Gary Gensler.

The commission remains steadfast in its mission to uphold
record-keeping rules as a guard against wrongdoing.

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